KUALA LUMPUR (Dec 7): Anticipating US Federal Reserve’s rate cuts, MIDF Research forecasts the ringgit to strengthen in 2024, averaging at RM4.38 throughout the year, an improvement from a forecast average of RM4.55 in 2023.
MIDF Research projected the ringgit, which has depreciated by 6% against the US dollar year-to-date, to appreciate to RM4.20 against the US dollar by the end of next year.
Bloomberg data showed that the ringgit stood at RM4.6742 versus the greenback at Dec 7, 2023, compared to RM4.4045 in Dec 30, 2022.
MIDF Research economist Abdul Mui’zz Morhalim pointed out that the weakness in the ringgit seen so far this year, was due to policy actions taken by major central banks, particularly the Fed, and not due to weakness in Malaysia’s economy, which is still on a positive growth trend.
“Next year, the expectation is that the US dollar is going to weaken against all other currencies, not just the Malaysian ringgit, and that would put less pressure on [Bank Negara Malaysia (BNM)] to use the overnight policy rate (OPR) as a tool to control the exchange rate,” he said at the “MIDF 2024 Market Outlook Presentation: Cruising Along” presentation on Thursday.
As the ringgit is expected to strengthen in 2024, Abdul Mui’zz also anticipates that BNM would not hike up the OPR any further and maintain it at the current level of 3% throughout the year.
“We don’t expect any adjustment by BNM because we take into account the rate reduction by the Fed. This could actually support the ringgit to strengthen because we believe more [fund] flows will be coming back to emerging markets, and this would also support regional currencies to appreciate against the US dollar, including [the] ringgit,” he said.
“From what we see, the 3% rate is deemed to be normal for Malaysia, and we expect that the focus for BNM will now be more on supporting growth because inflation has been moderating, subject to the [external] policy changes which would actually push inflation higher,” Abdul Mui’zz added.
Having said that, the economist maintained that a weak ringgit will be one of the major concerns for the Malaysian inflation outlook, as the country still relies heavily on food imports. He illustrated that whenever the ringgit weakens, a higher food inflation rate will be recorded, as seen so far this year.
MIDF Research expects Malaysia’s inflation rate to average at 3.2% in 2024, compared with a forecast average of 2.7% in 2023, taking into account the fuel subsidy rationalisation roll-out next year.